The Master Builders Australia (MBA) have provided a detailed submission to the Senate Inquiry into Affordable Housing, which argues that Australian housing is highly unaffordable:
Housing affordability remains a serious economic and public policy challenge in Australia.
A detailed study undertaken by Master Builders (Master Builders, 2012) found, inter alia:
as a nation, Australia has one of the highest levels of housing unaffordability in the world – being second only to Hong Kong on global league tables of housing unaffordability;
in our major capital cities, housing is at best ‘not affordable’ in Brisbane, Hobart, Canberra and Darwin, and at worst ‘severely unaffordable’ in Sydney, Melbourne, Adelaide and Perth; and,
a number of our major (and growing) regional areas – such as the Sunshine Coast and the Gold Coast in Queensland, Coffs Harbour and Newcastle in NSW, Mandurah in Western Australia, and Geelong in Victoria – are also ‘severely unaffordable’.
Housing affordability was measured as the median house price divided by the median income of the house purchaser (reported as the Housing Affordability Ratio; HAR), which allowed for the following categorisations:
Affordable: where the HAR was less than 5 times (that is, the median house price was less than 5 times the median income of the home buyer), implying a loan repayment ratio of 26 per cent of income;
Moderately unaffordable: where the HAR was between 5 and 6 times, implying a loan repayment ratio of 35 per cent of income;
Not affordable: where the HAR was between 6 and 7 times, which would imply a loan repayment ratio of 42 per cent of income; and,
Severely unaffordable: where the HAR was 7 or more times, which implied a loan repayment ratio of at least 52 per cent of income.
Graph 5.1 shows the pattern of the deterioration of housing affordability across the Australian States and Territories between 2001 and 2011.
As can be seen, all of the Australian States (except NSW) were in the affordable range in 2001 (that is, below the horizontal green line).
The MBA’s analysis is certainly closer to the mark than the RBA’s submission to the Inquiry, which has used dodgy income data to understate Australia’s housing affordability problems.
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As expected, the MBA’s proposed solutions are weighted heavily towards fixing Australia’s constipated land-use and planning system, along with reducing taxes and charges on new development. To achieve this outcome, the MBA implores the various levels of government to make housing affordability a priority by working together through COAG, with the Federal Government providing incentive payments to jurisdictions that meet defined outcomes. In order to guide this process, the MBA recommends creating an independent panel drawn from key stakeholders to measure and assess compliance with the agreed performance measures.
Overall, the MBA has produced a sensible submission, which hopefully will carry some weight at the Inquiry.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
